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Analysis: Spring thaw could drop U.S. beef prices

1 year, 1 month ago from cattlenetwork.com

Already pricey beef at grocery stores is expected to become even more expensive in February, but consumers could catch a break after that

Already pricey beef at grocery stores is expected to become even more expensive in February - wholesale beef and cattle prices are at all-time highs this winter in the United States, fueled by a tight supply of cattle.

Prices for slaughter-ready cattle soared this month because the shutdown of packing plants during the Christmas and New Year's holidays constricted the flow of steaks and roasts to supermarkets and restaurants.

With the U.S. cattle herd already at a 61-year low of 89 million head, supplies tightened further as waves of unusually cold weather slowed cattle weight gains and delayed the movement of livestock from feeding yards to slaughterhouses.

But consumers should catch a brief break once arctic temperatures ease and warmer spring weather allow cattle to put on weight more easily and get to market quicker. Packing plants also are expected to lower the price that they charge grocers for beef in the face of a brewing pushback against high prices, economists said.

"You can take cattle up as high as you want, and when does the consumer get a chance to vote?," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

There are limits to the price relief, however. Despite some short-term easing, economists forecast beef prices to hover around record highs for at least two more years.

Beef will become tougher to find in grocery stores as retailers choose to feature chicken and other less costly meats, said John Ginzel, analyst with brokerage firm The Linn Group in Chicago. Exorbitant beef costs will cause major damage to retailer orders for the next 60 days, he added.

"Once this winter weather and supply flow disruptions end, there is going to be a very limp demand out there on the part of grocers and consumers. It's going to take a lot of downward price reaction to buy some of that back," said Ginzel.

The outlook for a temporary drop in U.S. beef costs comes as global prices also are expected to moderate because of waning demand from shoppers suffering sticker shock.

Global food prices rose slightly in December amid increased demand for meat from countries like China and Japan, but sales could begin to taper "considering how high" meat prices are, the United Nations food agency said this month.

American meat packers have been hard pressed to pay high prices for cattle to honor the commitments they made weeks earlier to deliver beef to some buyers at much lower prices.

Some of the country's biggest meat processors, Tyson Foods and Cargill Inc , hiked prices for beef to offset high cattle costs which, on average, lifted their operating margins in the black during a season when they typically lose money.

Last week, prices for slaughter-ready cattle in the U.S. Plains fetched up to $150 per hundredweight (cwt). It set a record four weeks in a row and was up $23 from the same week last year.

At the same time, choice-graded beef at wholesale reached an all-time high of $240.73 per cwt following a 10-day string of record highs. Select beef cuts peaked at $237.32 after a record run of 14 straight days, according to U.S. Department of Agriculture data.

RIDING OUT THE STORM

Increased cattle costs normally take about a month to show up in grocery stores, and the same delay likely will occur once prices begin falling this spring, analysts said.

"What we've been doing here in January should get us some pretty expensive grocery store beef in February," said University of Missouri livestock economist Ron Plain.

"They're going to buy less beef. They have to because it's not there," he said.

Frank Stoysich Meats in Omaha, a family-owned business for more than 60 year, still wraps meat orders in old-fashioned butcher paper. Despite the current supply squeeze, owner Frank Stoysich, said beef prices have remained fairly stable in January - the slowest month of the year for business.

Still, he was mulling the prospect of raising beef prices in about a month because of tightening supplies.

"I've been hearing a lot in the wind about beef prices going up, and live cattle getting more expensive," he said. The herd size is the key factor, Stoysich said. "The numbers have just gotten low."

The new five-year Farm Bill - passed by the U.S. House of Representatives on Wednesday and headed to the Senate for a vote as early as next week - could be another factor pushing prices high, thanks to a provision called Country of Origin Labeling. The beef industry opposed the measure, which requires labels identifying where animals are born, grown and slaughtered, claiming it would add costs.

"You're starting with high-priced cattle and beef in a pretty competitive market and you're slapping on another cost," said John Nalivka, president of Sterling Marketing Inc. in Vale, Oregon. At some point consumers will resist those price increases, he said.

RANCHERS CASH IN

The high prices and forecasts of continued small herds are prompting ranchers to plunk down big bucks, both to rebuild the U.S. herd and to capitalize on the jump in cattle prices.

The herd size will not change overnight. It takes roughly 2 -1/2 years to produce market-ready cattle from the time heifers are retained for breeding. Other meat animals develop more quickly: About a year to produce pork after gilts, young female pigs, are held back, and only nine weeks from the time chicken eggs are set in incubators.

"It takes years to get more beef to consumers once positive profit signals are in the marketplace. Meanwhile, poultry and pork will be picking away at the beef consumption base in 2014 and 2015," said Chris Hurt, an agricultural economist at Purdue University.

The competition between cattle and pork in 2014 could be affected by the impact of a virus that kills baby pigs. Porcine Epidemic Diarrhea virus (PEDv) made its first-ever appearance in the United States last year and has spread to 23 states.

PEDv, which has no effect on humans, may have killed as many as 4 million pigs and is beginning to affect market prices. Hog futures for June delivery have traded at record highs so far this year on the Chicago Mercantile Exchange.

For cattle producers, any price impact on pork from PEDv could help beef remain competitive even if cattle prices stay high - one of several factors favorable to ranchers seeking to rebuild their herds.

There are signs that ranchers have begun the rebuilding process. On Friday, monthly USDA cattle-on-feed data showed the total number of heifers in feedlots as of January 1 dropped 8 percent from a year ago.

"That 8 percent decline in heifers, versus only a 5 pct decline in total numbers of cattle on feed, tells you they're keeping some of them back," said Elaine Johnson, analyst with CattleHedging.com in Denver, Colorado.

USDA's annual cattle inventory report, scheduled for release on January 31, will measure the effect of efforts to repopulate the U.S. herd in 2013 and give an eye toward the future, analysts said.